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Talking About M&As
Brokers say there are many challenges and opportunities in a market that is seeing fervent M&A activity.
“A big challenge is the pace of change in the markets. It’s unpredictable,” said Doug Hammond, chairman and chief executive officer of NFP. Hammond was a keynote speaker at the 9th Annual SNL Insurance Brokerage Summit in New York in November.
At the time of the summit, there were 326 announced mergers or acquisitions in 2015 — the biggest year on record, according to a MarshBerry report.
It’s the “Wild West” of M&A. — Clark Wormer, director of M&A, HUB International
It’s the “Wild West” of M&A, said Clark Wormer, director of M&A at HUB International. He said HUB expects to top 50 transactions by year end.
Every company represented in the summit’s “Deal Makers Panel” has been an M&A player. However, the speakers stressed that acquisitions should not be so much about growth and expansion as they are about adding talent and services, without shortchanging customers’ expectations.
“Making an acquisition isn’t just about revenue; it’s about gaining a vehicle for getting more producers,” Wormer said, adding that HUB will “pay more for a firm that has a record of sustainable growth and low risk profile.”
Ben Newman, chief financial officer, Marsh & McLennan Agency — which formed six new partnerships this year — pointed out the importance of younger talent in an acquisition target.
“It’s about perpetuation; we’re less concerned about historical growth, and more about opportunity. There is a lack of consistency in succession planning across acquisition targets. Some invest year over year in mentoring and hiring, and others are more focused on maximizing profits,” he said.
“We’re focused more on organic growth over acquisitions,” he said, “An acquisition is the riskiest thing we ever do.” — Stephen Farr, senior vice president, Alliant Insurance Services
Stephen Farr, senior vice president, Alliant Insurance Services, said the “manic” M&A environment has created a seller’s market, but focus should be on finding the right chemistry with another company and forming a true partnership.
This year, Alliant announced nine acquisitions, a modest number compared to the activity of other large brokers.
“We’re focused more on organic growth over acquisitions,” he said, “An acquisition is the riskiest thing we ever do.”
Newman stressed that seeking out acquisitions for the sake of growth doesn’t always make the best business sense.
“We don’t require regional leaders to seek out acquisitions, and we don’t necessarily budget for it. We look at each opportunity on its own merit, and it’s OK if we don’t do any,” he said.
Innovation and the Internet of Things
Recent mergers between big companies — such as Willis Group and Towers Watson — and frequent acquisitions of smaller independents by larger brokers mean that shares of the marketplace have become concentrated among fewer brokers and product choice for consumers has narrowed.
The trend shows no signs of stopping.
Connected technologies open the door for more stringent risk management and loss control.
David Ross, vice president of acquisitions for BroadStreet Corp., which itself completed 20 transactions this year, said the M&A world will remain “torrid” because “new investors are coming into the market every day.”
To differentiate themselves, brokers need to focus more on innovation, Hammond said. “Most leaders manage the present, but don’t evaluate the past or create the future.”
Relationships will become even more important as technology makes it easier for buyers to eliminate the middle man and purchase insurance directly, through apps and online portals. Brokers need to enhance their value propositions with broader services, expertise and their own technology tools.
Martin Spit, managing director of Accenture, suggested that opportunity for innovation lies in the fast-developing realm of the Internet of Things. Accenture predicted each person would have about seven connected devices by 2020, and that “connected insurance” will have a significant global share.
Connected technologies open the door for more stringent risk management and loss control.
For example, shipping giant Maersk and AT&T collaborated to connect 280,000 containers, allowing the company to monitor and track individual container temperature, location and shipping conditions, reducing waste and saving money.
According to Spit, employers could take advantage of similar technologies to create equipment programmed to only work for certain staff members, for example, or to monitor supply chains for severe weather risk or threats of political instability.
Some carriers have shown an interest in requiring the use of technology to improve safety and reliability as a condition of certain types of coverage. Brokers can play a key role in pitching these tools to clients and making adoption more widespread.
In doing so, the insurance industry can “evolve from reactive accident compensators to proactive protection service providers,” Spit said, adding that “the best brokers act as risk managers.”
